July 5, 2022

Why Building Credit is So Important

Table of Contents Why is building credit important?Benefits of building creditBetter approval ratesLower interest ratesBetter…

Why Building Credit is So Important

A good credit score is essential when your goal is to qualify for the lowest mortgage rates, snag a stellar credit card bonus and sometimes even land your dream job. Since your credit influences so many major life decisions, it’s important to build credit early and consistently.

You can build credit in any number of ways, including opening a credit card, paying eligible bills on time with Experian Boost™ and getting credit for monthly rent payments.

Knowing the reasons why credit is so important can help motivate you to work on building a good credit score. Below, we outline a few of the major benefits of building credit, plus ways you can build a good credit score.

Why is building credit important?

Benefits of building credit

How to build credit

Establishing credit can be done in a variety of ways. You may already be taking actions that affect your credit score without knowing it. Actions like paying your utility bill on time or keeping a low credit card balance can positively influence your credit. Similarly, missing payments or racking up high balances can hurt your credit.

In order to build or rebuild your credit, follow these good credit behaviors:

Open a credit card

A credit card can be a simple way to build credit, when you use it responsibly. You’ll benefit from the ability to buy now and pay later, while also establishing a credit score. There are credit cards geared toward consumers who have little to no credit history.

Consider CNBC Select’s best credit cards for building credit:

Become an authorized user on a credit card

If you don’t want to take on the risk of opening your own credit card, become an authorized user on someone else’s account. An authorized user is a relatively low-risk way to build credit since you can piggyback off of someone else’s credit (just make sure the account owner has good credit). 

Make on time payments

Payment history is the most important factor of your credit score, so it’s important to always pay your bills on time. Autopay is a great tool that can help you schedule payments in advance, so you never miss a due date.

Pay bills in full

While you should make at least your minimum payment on time every month, try to pay your bill in full to reduce your credit utilization rate. This helps show lenders that you can responsibly manage your credit (and aren’t buying more than you can afford). That said, carrying a balance and incurring interest can be unavoidable at times. Paying some interest here and there isn’t the end of the world if it helps you make ends meet until you have the money available to tackle debt.

Get credit for eligible bills with Experian Boost

Experian Boost is a free service that lets you get credit for paying eligible monthly bills on time. Simply connect your utility, telecom and streaming subscription accounts to Experian Boost and get credit for positive, on-time payments. After you sign up and connect your bills, you’ll instantly receive a new credit score, which may reflect an increase. On average, users see a 13-point increase in their FICO® Score 8, which is based on Experian data. 

Learn more about how Experian Boost can help raise your credit score for free.

Get credit for rent payments

While mortgage payments appear on your credit report, rental payments typically don’t, though you can double check with your landlord. If you’re a renter with a history of positive payments, you may want to use a service like Rental Kharma or Rent Reporters that reports your payment history to the credit bureaus.

These services typically require verification with your landlord and charge a registration and monthly fee. Rental Kharma has a one-time $50 account setup fee and $8.95 monthly fee, while Rent Reporters charges a one-time $94.95, then a $9.95 monthly fee.

Bottom line

Building credit doesn’t need to take up too much of your time. You can work certain actions into your routine, like setting up autopay or linking eligible bills to a service like Experian Boost, that can benefit you in both the short- and long-term. The sooner you start building credit, the sooner you’ll reap the benefits.

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For rates and fees of the Discover it® Student Cash Back, click here.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.